Tariffs must rise

The increasing cost of fuel, labour and input costs in the commuter-bus sector is not being satisfied by government subsidies or inflation on ticket sales. GARETH GREATHEAD discusses the situation.

In the first week of October, the price of fuel increased by 99 cents for petrol and R1,24 for wholesale diesel. According to the Automobile Association (AA), this is the largest fuel price hike in the history of the country, aside from months where taxes were linked to increases.

The AA states: “The impact inflicted on the economy by such increases may put pressure on President Ramaphosa’s recently announced stimulus package. The cost of doing business will go up and consumers’ disposable income will shrink. We don’t believe the economy can grow meaningfully under such conditions.

“Furthermore, we estimate this increase could extract a further R2,5 billion a month in transport costs from an economy that is already on the ropes.”

The AA has linked the increase to a weak local economy, an unstable global market and a rise in the price of crude oil internationally.

Bloomberg reported that crude oil is likely to hit US$ 100 a barrel before the year is up.

Layton Beard, spokesperson at the AA, says: “If there is no short-term intervention to stimulate economic growth, resulting in a stronger rand to offset the price of crude oil internationally, the price of fuel in South Africa will continue to rise.”

An industry under pressure

In July, the price of diesel reached more than R14 per litre. At the time, President Cyril Ramaphosa called on transport providers to hold off on any tariff increases.

This is not the first time the commuter-bus industry has had to cushion the effect of rising costs over the past year. According to the South African Bus Operators Association (Saboa), the price of diesel has gone up 34 percent, year on year, since September last year.

Thys Heyns, executive director at Putco, says: “The diesel fuel price increase of R1,24 per litre will cost Putco an additional R42 million per annum. Already, Putco’s annual fuel bill has risen by R133 million since September 2017.”

Eric Cornelius, executive manager at Saboa explains: “The typical bus company is already working on tight margins. Labour accounts for about 40 percent of total operating costs. Labour costs increased by nine percent this year and this resulted in a 3,6-percent overall rise in total operating costs.

“Ordinarily, fuel represents about 30 percent of total operating costs. Since fuel increased by 34 percent, it resulted in an overall upsurge of 10,2 percent. These two cost components alone caused an increase of 13,8 percent in total operating costs in the bus industry.”

Supporting public transport

In South Africa, buses arguably provide the most stable form of mass public transport. When compared to trains and minibus taxis, buses provide a more reliable, clean and safe means of transport.

South African public transport caters for the most financially constrained groups in society. Without transport, people cannot access places of recreation, economic opportunity or social service.

According to Statistics South Africa’s National Household Travel Survey, 10,2 percent of families use buses as a means of transport.

Currently, the Public Transport Operations Grant (PTOG) is the subsidy provided by government to the commuter-bus industry. This year, this subsidy increased by only 3,2 percent. This is well below inflation and the government has not announced any plans to reassess the structure.

During a recent protest, the People Against Petrol and Paraffin Price Increase (Papppi) proposed that all pensioners, students and scholars be afforded free public transport, which may be implemented through a coupon scheme.

According to the organisation, the funds for its implementation could be sourced by cutting back on irrelevant and wasteful expenditure by government departments.

Beard says: “The AA will support any initiative that will benefit the mobility of people. It would be interesting to learn about the ins and outs of such a system, however.”

Fuel price must fall

Papppi also believes that fuel produced by Sasol should be sold for less than R10 a litre, because it is not dependent on the price of crude oil or the exchange
rate.

Beard explains that there are two issues that inhibit this from happening. “First, fuel is a regulated commodity, so if one company sells fuel at a specific price, everyone must sell for that price. Second, if everyone were to buy their fuel from Sasol it would not be able to fulfil the needs of all users in South Africa.”

In August, despite a weak rand and further increases in the cost of crude oil internationally, the price of fuel went virtually unchanged. This was due to a temporary intervention initiated by the government and the Central Energy Fund.   

Beard says that in the future the government could consider restructuring the template used to calculate the basic fuel price in the short term. This may enable the government to adjust the price of fuel without making changes to taxes collected on fuel.

Most recently, the government has suggested the capping of 93-grade unleaded petrol at a set point. Government expects that this will be achieved through a reduction in the price of fuel sold wholesale.

At the time of writing, the petroleum industry had been given a deadline to respond to the proposal.

Bus Tariffs must rise

Saboa demonstrates the effect a 13,8-percent increase in operating costs has had on bus operators by using a R10 bus ticket as an example. To maintain traditional cost structures and profit margins, a bus company would have to earn an additional R1,38 per ticket.

This year, the PTOG subsidy increased by 3,2 percent. This equates to only 16 cents per ticket, as only half of the ticket price is subsidised. The passenger tariff portion increased by around six percent, therefore 30 cents per ticket (again 50 percent of the ticket value).

The overall increase gained by the operators is 46 cents – leaving them short of 92 cents per ticket on subsidised journeys.

The most recent increase in the price of fuel will leave the commuter-bus industry with little option but to pass on the increase in operating costs to passengers. At the same time, most bus companies have already adjusted their fares for the year and further increases may lead to the loss of passengers.